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Question DetailsAsked on 2/19/2012

need to remodel our home how can i go about i own it

My home needs to be remodel the apprasial is very low how can i get a loan

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2 Answers


Some banks will issue construction loans based upon the plan improvements. For example, if your home apprasial is low, but your remodel will cause the low scoring areas of your home to be improved, your new appraisal should be higher after the work so the bank will make a loan based upon the proposed value of the property after the work is completed.

Most architectural firms and the larger (or more experienced) builders will be familar with making "bank packages". These will show the bank the work to be completed with a time schedule, the specific fixtures, appliances and finishes to be used and an estimated budget. We will also include an estimated value after the work is completed.

The bank will then take the estimated cost and have their own appraisers calculate what the value of the home will be after the work is done. They will then subract this value from the amount of the work and compare it to the current value of your home. If this new amount is high enough, they will offer you a construction loan (you will only get funds as certain parts of the project are completed). When the work is finished the construction loan will turn into a second mortgage or be added to your current mortgage depending on your agreement.

The first thing to do is find out why your appraisal is low: If it is location, age, size of lot, etc. there isn't a lot you can do there. If it is because the building needs exterior renovations; start there. If it is because it has too few bathrooms or bedrooms, or an outdated kitchen, start there. Kitchens and bathrooms are the fastest way to improve the value of a home, but are also the most expensive. An inexpensive addition that gives a new bedroom suite and extends the size of a small kitchen would add value in several areas (added bed, bath, & larger + newer kitchen).

Remember, also, if the banks say "No", it is because they don't think the numbers work--which is good advice from financial professionals. If a remodel doesn't increase the value enough for a loan, now may not be the time to remodel. Taking a loan from a builder or other source may cause you to end up owing more on your home without seeing any value returned.

Best of luck!

Answered 8 years ago by Kenny Johnson


Kenny has good advice here. I've worked with lenders on projects like this before and one thing that always seems to come up is the homeowner wanting to do some of the work themselves to save money. I've never had a bank agree to that. They want a licensed contractor that they thoroughly check out to do all of the work and then cut the draw checks to both the contractor and homeowner to be endorsed by both. They also want to see evidence of sufficient work completion at the time of paying those draw checks. Typically the down payment to the contractor is the sole resposibility of the homeowner (20-25% of the project).

Consulting with a Realtor before proceeding with application fees to the bank may be advisable. S/he can tell you what the current market is for your neighborhood and give you advice on what renovations will be needed to keep up as well as what would be considered over-building where you actually do too much to the home as compared to the neighbors. While you are probably not looking to sell it any time soon these are some of the things lenders are going to take into consideration and a Realtor's opinion is cheaper than bank applications and appraiser fees. Sometimes they'll meet you for free just to build the future connection. You'll still have to pay the bank and appraiser fees if you proceed but will be saving money if what you want to do is not a viable option to create additional value in your home.

Credit unions tend to require a few more hoops to jump through but it really is in your best interest to make sure you don't get yourself in an "upside down" situation. Once they approve you and your contractor I've found they are much easier to work with from a contractor's perspective as far as getting draw checks and having a local person to communicate with. Larger, national banks can takes days or even over a week to send draw checks which can disrupt the flow of the work due to a lack of funds.

Todd Shell
Todd's Home Services
San Antonio, TX

Answered 8 years ago by Todd's Home Services

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